Treasury under fire following allegations it had ‘influence’ over RBS GRG unit

Reporter at City A.M. covering City politics, transport and law. Get in touch: alexandra.rogers@cityam.com

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After launching an initial investigation into GRG, the FCA announced it would not investigate the matter further (Source: Getty)

Alexandra Rogers

The Treasury has been accused of a “flagrant breach” of the arms-length relationship it had with RBS during the financial crisis following allegations that a Whitehall agency exerted influence over the bank’s controversial restructuring unit.

On Tuesday allegations came to light via a legal claim by one of RBS’s former customers, Oliver Morley, that the Treasury had significant operational influence over the bank's Global Restructuring Group (GRG) which has been accused of “widespread inappropriate mistreatment” of the struggling businesses that were placed under its control by the Financial Conduct Authority (FCA).

The Manchester-based businessman has launched a £100m claim against RBS, accusing GRG of placing his business under “economic duress” when its property arm, the West Register, acquired some of his assets in 2010. He is also seeking damages for “unjust enrichment”.

RBS said it “fundamentally disagrees with Morley’s claims and does not believe they have any merit”. A spokesperson for the Treasury said: “No claim has been brought against HM Treasury. This court case is between the claimant, Mr Morley, and RBS.”

Documents disclosed in court point to the alleged influence that the Asset Protection Agency (APA), which insured RBS’ loans, had over GRG – including on matters relating to the treatment of clients.

In one example, it emerged in court this week that in disclosure for the Morley case, names of individuals at the agency had been redacted because of the bank’s “duty of confidentiality to the APA” and because “the bank was required to obtain consent from HM Treasury to disclose the redacted APA emails”. This is contrary to the bank’s original explanation that redactions were used to protect third-party information.

A Treasury source said the government had a practice of redacting the names of officials below certain senior grades from disclosure in litigation.

Kevin Hollinrake MP, co-chair of a parliamentary group on Fair Business Banking, said the allegations, if true, “would be a flagrant breach of the purported arms-length relationship between the Treasury and RBS”.

“These allegations must be robustly investigated and anyone found guilty of wrongdoing should be held to account.

“It goes without saying that any victims should be fully compensated. If there is any substance to these claims it will only add to the calls for a full public inquiry into this and other UK banking scandals.”

Avi Gordon from Cubism Law, acting for Morley, said: “We were surprised to see the extent of the communication between the Asset Protection Agency and RBS. You don’t expect to see a government department getting involved in the day to day business of a bank, especially when that involvement has such grave consequences for the bank’s customers, such as Oliver. This is crying out for a public enquiry in addition to Oliver’s trial against RBS, currently listed for October this year.”

The GRG scandal came to a head when a leaked report found that the bank was profiting from distressed business, with one leaked internal RBS memo revealing that staff were told to let small businesses “hang themselves”.

After launching an initial investigation into GRG, the financial watchdog announced last summer that it would not investigate the matter further, saying it found “no evidence that RBS artificially distressed and transferred otherwise viable SME businesses to GRG to profit from their restructuring or insolvency”.

RBS said: "The FCA has confirmed its independent review found no evidence that RBS artificially distressed and transferred otherwise viable SME businesses to GRG to profit from their restructuring or insolvency. Nor did it identify any cases where the purchase of a property by West Register alone gave rise to a financial loss to the customer.”